Xiao is the character for laughter, smiles and jokes. Here it’s combined with the haha sound of laughter to mean ‘laughingly, with a laugh’.
When I was a child we used to read a Hong Kong Chinese cartoon strip about a character called Lo Footsie (that’s how it sounded to us). By ‘read’ I mean work out the stories from the drawings and laugh at them, since none of us could read Chinese. However, we did figure out the two characters meaning ‘haha’ as they were used a lot with pictures of people laughing.